Afternoon, everyone. I'm Dan Bray, Managing Director in the Morgan Stanley Healthcare Group. I have with me here Travis Dalton, CEO of Claritev Corporation, and Doug Garis, CFO. Guys, maybe we jump right into it.
Sounds good.
Maybe you can start by talking about a bit of the Claritev journey and where you guys are in that journey, you focusing on some of the recent success and, you know, looking forward to strategic priorities.
Yeah, happy to. Thank you all for being here. Appreciate it. Travis, CEO, Doug, our CFO. I think the first thing I'll say is, I think my first official day was March 1, 2023. It's been an interesting ride if you've been following us. You know, why did I come here? I'll start with that. I actually viewed the company very interesting. I thought it was a health tech company. I was at Sterner prior to that. We sold to Oracle. I ran Oracle Health, and I saw, I didn't, I'd never heard of the company when they called me. I started to look at it. I'm like, wow, there's a lot of untapped potential here. This is part OOI, aligned business model, products and services, and it's got great people with high character. I felt like the skills that I had developed over time could actually be useful here.
Let's go take a run at this. I think the journey has been, you got to have two things if you're going to do a "turnaround," which is how I viewed it. You got to have structure and a story. The structure became very simple as we lay it down. Every one of our 3,000 people can tell you what clarity, alignment, and focus means. Clarity of purpose, alignment to attract talent, and focus on things that matter most. It's putting systems, processes, tools, technology in place so that you can discern the critical few from the many things that you could be working on. We've been spending a lot of time on that.
The story is 2024 was a foundational year for us, getting the management team in order, laying down that purpose, preparing for a rebrand, restructuring $4.5 billion of debt, which was a blast, as you could probably imagine, but we got it done, and buying ourselves the opportunity to earn our way into taking this journey. We framed 2024, this year, as the turn, and it's actually going exceedingly well in my mind. We've turned a year over year growth more quickly than we thought we would. We've opened up new market verticals, which we'll talk about, and we're really seeing momentum for the business. Our stock is starting to perform, the team's starting to perform, and we see a lot of positive momentum for the company on a go-forward basis. We're ahead of schedule.
We're thrilled with our progress, and we think this is really just the very, very beginning of our journey. We haven't even really gotten started at this point, but we're happy with the progress that we've made.
Great. Maybe we jump on that market vertical point. Can you talk a little bit about the verticals that you've repositioned the company around, and particularly around the Brigio partnership and how that's launched you into the international market, if you will?
Yeah, and I'm happy to. I think kind of the how to, how are we going to grow? We've talked to the team a lot about, one, is keep the main thing the main thing. We're not abandoning what we've done for a long time, but securing and renewing our large key clients has been really important for us. We've been able to renew four of our five largest clients, at good economics for us on a go-forward basis. Winning with what we call our VDHP product, which is a network and RVP product. We had two sellers on that, and it was growing double digits. Logic would tell you, what if I had 10 sellers on that? We were undervalued as it relates to our selling motion. We needed to identify the opportunities and put the proper sales incentives on that, which again was foundational.
Sellers on the bag with quotas, incentives, working the products. Those were things that just weren't inherent to the company, believe it or not. Some of those basics, and then you'll hear me say this over and over, my team has is horizontal products and vertical markets. I can make something once and sell it a bunch of times without a lot of modification. We thought that we, across our product set, that we have horizontal capabilities across our network analytics cost solutions that we can sell across different market verticals. When I got here, we had one vertical, which is basically payer. Now we sell to brokers and consultants direct to employer. We have a partner channel through Oracle, Athena, and others that we're selling into. We split up an international vertical, which is a pure extrapolation of that concept.
The Brigio relationship, I ran the Middle East and Africa at Oracle and the rest of the globe at the time. We had about 80% of the market share. I knew them from a prior life. I just called them and said, "Hey, I think we can help you take with denials." They use the same coding standards that we use in the U.S. They use the same EMRs. They have a lot of the same data sets codified in the same way. We were able to take our code editing products, put it on top of their claims flow, and immediately evaluate 3.5% improvement against a 7% denial rate. We're able to take their denials down in half, which is about a $30 to $40 million a year revenue attribution for them. That's one client, one time, one product.
The minimum lift for us because the product exists, it sits on ICD-9 and 10 or ICD-10. We actually were able to kind of test out this vertical market theory. Now we're talking about networks, we're talking about Ben Insights, we're talking about data eyesight or DNDS and other products across different parts. We intend to move into KSA, Oman, other parts of the Emirates, and we actually think that there's opportunity in Europe. That is a market vertical for us, but it's on strategy because we're still using cost products, analytics products, and capabilities. That's ultimately how we've been able to increase our TAM and what you're starting to see show up. I think we've had 16 new logos this year. At this time last year, we had like five or six. We're getting more at bats, we're getting more opportunities, and we're diversifying the business that way.
Very good. Maybe turn to the end markets a little bit. I think everyone has seen the headlines around payers over the last year, today even this morning. What are payers saying to you? What are they coming to Claritev? What are they asking for?
Yeah, I don't think it's just payers. I think there's more mutual interest in healthcare than people realize. Payers want to manage risk, and they want to protect employers. Employers want the best benefit at the proper cost, and ultimately providers want outcome and service, and they want proper payment, and they want cash flow. Those things can all be the same thing with good information. More transparent data, better publicly available data, more information, I think really allows us to regulate the market in a way that can self-regulate versus looking at other policies and legislation to do that. I think theoretically, I believe that. I mean, it's opaque. Costs are too high. There's misaligned incentives, but there's mutual interest on a lot of levels. I think for us, I'm going to digress just for a minute.
Aside from what they're looking for from us, our products fit into a really good lane as it relates to the macro health things that are happening in the market. When you look at us and you think healthcare costs are going up 78%, the employer costs are going up dramatically. They're getting hit with massive premiums. Some of you probably see those as an employer. We see out of network not going away anytime soon. We think it'll remain 5% to 7% of the market. MSA is here to stay in our view. We think there's going to be nothing but more enforcement around publicly available data and privacy and data availability. We have a product that fits in every one of those. When you look at that scenario, we should be able to roll out of the bed, I tell my team, and hit get single-digit growth.
That doesn't impress me because we're really well positioned as it relates to the macroeconomics of healthcare and what's happening. Although cost increase is bad for healthcare, it's good for us because our products drive cost down in a real way. I think what they're looking for us is to use our network for access, bring analytics to the table, transparency and insights. Ultimately, with Ben Insights, we can drive cost down and revenue up, and we're happy to talk about that. Bringing more innovation on top of some really good solutions that are very sticky.
Great. Maybe you could, just for the folks, double click a little bit on the provider business there. I think everyone knows you in the payer market. What are you delivering to providers?
Yeah, I think, again, this was another one of those where I came and I did a town hall and I started and I'm like, we're going to go sell to providers. You could have heard a pin drop in that room of 3,000 associates. I'm like, yeah, it's a vertical market. Our products work in the provider market just like they would on the payer side. I said, let's see if it works. We decided to launch a product called Complete, which is essentially we're able to, because we have Ben Insights as the product, data science, and AI, go into any provider and evaluate their chargemaster against two things. One is a competitive compare for your services and capabilities against like hospitals or health systems. What most providers do today is they just pretend to be a patient and call around. Hey, we can charge them for that.
That's literally the competitive intelligence of a provider. We served them for 25 years. We're able to do with analytics across the entirety of every single CPT code that they have. You can pinpoint very specifically where you think that provider should focus as it relates to where they sit competitively and the network contract on offer. There's massive revenue maximization opportunity inside of that. That was, again, that's a product we offer today. There's no reason we shouldn't offer that as a technology platform and health tech company to a market vertical that can consume the service. That was really the thesis, and it's going better than expected. We've got, I think, seven clients that are signed. We've got a backlog that's grown dramatically, and we're actively working inside of that market.
The other thing that's interesting is that on the back half of that, we have a product that looks at employers and basically can look at you as an employer, look at all of your demographics, look at all of the information that you have. It's three or four inputs to us, and we can tell you what your health plan is. We ran that on ourselves. We're able to save $4 million and improve our employee benefit. That's not a technically hard thing to solve. It's actually very, very doable with the technology. That's a big focus area for us is helping employers directly drive down costs and using that information to evaluate where they're at against what's on offer and against the benefit plans and packages. Using AI to optimize your employee benefit is something that we're very focused on.
Those are the kind of things we're doing in that market, which is, as I said, we feel like it's actually going really well for us.
Excellent. Now, I'd like to talk a little bit about some of the recent performance of the company and the strategy. On your last earnings call, talk about some really exciting logo wins, some very exciting renewals. Just thinking about the feedback you're getting from those customers, your why are folks choosing Claritev, how are you sort of sussing out the competitive advantage you have in the field?
Yeah, I think a few things. There's no tricks. It's just freaking hard work. It's doing the right things, building it the right way. The company has been very good at delivering and keeping promises for a long time. That obviously goes to trust. We're highly trusted. We're very sticky. We have a high NPS, all that stuff. Our business model is highly aligned. That's something for us that's been challenging for Doug, and he can talk to that. Predicting the business wasn't always easy because it's a pure ROI-based business in a lot of ways. We find savings and we get some benefit to that savings that we find on behalf of our clients. It's an easy sale. If I make you money, will you give me a penny back? It's not hard to sell the product, but it's not always highly recurring and predictable.
In some ways, that was something that we had to suss out and work out on how to do that. Clients love that aspect of what we do, which is a really good thing. I'll just say, and Doug's going to comment on that in a second. We hired a CGO. We've put six leaders over the six market verticals. We've implemented pay for performance. We've implemented incentive plans. They all have quotas. We have sellers on the bag, and we're measuring their performance. It's basic ingredients like that. The team, you get what you inspect, not expect. With sellers, you better inspect them. We have insights into the business, clear forecast. We're on their case. We know what they're doing. That's a good thing. That's how you ultimately drive value. A lot of it's just been hard work like that. Again, I mentioned the new logos.
I'll make one other comment, or you comment, Doug. We've implemented a broker incentive program. The company had never done that before. Why aren't we incenting folks to look at our products more seriously? Those are the kind of things that we're doing that I think are just bread and butter. It's not a magic trick. We don't have to do something crazy here to make this company successful. We just have to execute better on some of our core components while we search for exponential growth in other areas.
Yeah, and the only thing I would add to that is, to maybe put it into one phrase, we've spent the last year really mastering the basics. It's basic to have a sales call on a weekly basis to talk about your funnel and have your sales team, your commercial team, and your finance and operations organizations talk about the potential prospects for new business. I think the channel partners has been a really interesting vertical for us too, to really figure out, you know, there's a lot within our current product set that we are going to build. We are a product company. We are going to build solutions. We have a lot, and we actually, last week at another conference, mentioned that we're going to release a product roadmap.
We've unlocked another level of communication with our customers to where we can not only have a one-time transactional sale and then come back next year when it's time to renew or after a multi-year period. Getting more at bats is critical for us, but mastering the basics and putting right people on right challenges and providing the proper incentives. I think last year when I got here, we paid $2 million of sales incentives on almost a billion dollar business. If you want to understand how a business can grow, you have to incent your channel partners, you have to incent a sales organization, and you can expect them to deliver if you incent them to do so. We've been dead set on mastering the basics, and I think that's why we've been able to hit our growth stride a little bit earlier than we had previously communicated.
Yeah, and Doug said something there, and it's important. I mean, we've, you know, the hard work of the foundation is implementing systems and tools that allow you to be flexible to grow. We've implemented product lifecycle management. We've quintupled the size of our product organization. Selling is listening and problem solving, right? It's not just going out and knocking on doors. We expect to make more better stuff. I tell the team, like, make more. Listen, there's no reason we can't innovate. We've been testing our ability to organically make things versus having to inorganically grow all the time. We expect to do both. We make no mistake about it, but we actually want to be able to do things organically. We're really happy with PLM and with what we've been able to do in terms of published roadmaps.
We also just completed our cloud migration to the Oracle Cloud, and we're fully cloud enabled now. That gives us a huge opportunity with not just cloud, but we also are going to embed our products and services into the Oracle HCM. That's a huge thing for, I think, that some have picked up on, and I think we've got a little momentum in our stock because some people see that, is that we're able to take our products and natively integrate it inside of human capital management. They're able to sell Ben Insights inside of that as badged Oracle sellers and get spiffed on it. On the other side, Oracle gets cloud volume because we're a full Oracle shop. That is something that feeds itself in a very material way as we go forward. That was part of that relationship. It wasn't just OpEx takeout over time.
It actually was the ability to sell product and drive revenue growth inside of that. Those are the kind of things we're doing that's a different company than we found March of last year. That relationship is done, inked, signed, and we're executing on that right now.
Very impressive. Maybe we talk a little bit about the regulatory landscape. You know, we're a few years now in kind of a No Surprises Act world. Are there any kind of insights or trends you would give to the audience around how that's playing out, what that's looking like for Claritev?
Yeah, I'll give a few. I said a few of these things already. We, you know, some of you may have better, I'd love to hear some of your data points. You all look at the market analytically for sure, but healthcare costs are rising, no doubt. We see out of network continuing to be about 6%. We think the No Surprises Act will be here to stay. Providers are winning most of those cases. When you look at arbitration, and they figured that out. For the cases that are won on the other side, we're about 7% better than anybody else. I view that as an opportunity for us just to go to large players and say, just outsource all that to us. We're happy to do it for you. We can automate it. We can scale it. We can do it faster, better, cheaper.
We think that we win more than we know we do based on the data that's out there. A couple of interesting things is, if you look at the durability of our business, I think you're going to continue to see high-cost claims do nothing but increase. Behavioral health, rehab, surgery, those are areas that are going to proliferate over time. I don't see a world where some of those things come in network anytime soon. I actually think it's going to be very different. We're seeing more high-cost claims come through and more savings per claim. We're seeing what, 3% to 5% more per claim that we're saving.
If you look at medical inflation, you look at those high-cost claimants, you look at us being able to get more out of each claim that whizzes by us, you actually have a very healthy, durable core that you can grow off of and innovate and go take chances. We'd like to take a few risks, take a few chances on some things. I think that's how we generally see the market. The other thing is obviously a focus on fraud, waste, and abuse. Huge focus. We have payment and revenue integrity products. We're seeing double-digit growth in that business. We think there's a massive opportunity for us, and we've been doing it for a long time. We have 80 million code combinations that we can look at that we've developed over time. We think that's a good business for us.
Great. You know, one exciting partnership I think you all have is with Echo around healthcare payments. Doug, I'd love to hear how you see Claritev addressing kind of the huge opportunity in healthcare payments going forward.
Yeah, I mean, part of our core business is extending the value that we provide to the payer segment. We closed a few deals last quarter. I think we have over 30 deals in the funnel right now, and we actually have some quite large deals with some large payers and TPAs. Part of the channel strategy and the partner strategy is some of the stuff we do really well ourselves, like network analytics, reference-based pricing, and payment and revenue integrity. We have a very good, strong, and performing core business. Where we have the opportunity to grab onto partners and go to market together, we formed a really good commercial alliance with Echo. I think that is a channel for us, and you'll hear probably in the next few earnings calls a lot more wins on the dashboard, but it took a little bit of time to get organized.
We have channel sales leadership focused on partnership too, in the spirit of mastering the basics. The Echo partnership for us is all about accuracy, errors, providing a competitive payment solution that attaches to our core offering, which we think has been very well received in the market. Again, a testament of the funnel creation that we've recently been able to collectively manage with Echo. I expect the benefit for that to only increase over time.
Excellent. I'll just pause for a minute. Any questions from the audience before we proceed? Hearing none.
An overflow crowd. We can't do that.
Maybe zooming out a little bit, thinking about taking this company over and transforming it, how do you think about innovation? How do you encourage your team to innovate, to meet your customers, to address their new problems, to stay on the cutting edge of a competitive industry?
Yeah, I talked a little bit about it. It's what's the, what, 90% perspiration, 10% inspiration? Is that the, I probably, I think I have that right. I bring it up because, you know, innovating is, again, it's about having good strategies and processes. We've implemented strategic planning, where we actually have all of our go-to-market product and our market verticals get together, and we are sharing the insights and the learning of what we're hearing. That's starting to yield more product ideas inside of our existing capabilities, but also more tuck-in merger acquisition opportunities that we think could serve the market on strategy for us. It's really things like that. It's strat planning, it's product lifecycle management, and having the tools to manage that well, investing in your infrastructure. I mentioned we invested in Oracle Cloud Infrastructure.
We're going to be, our processing speeds are faster, our turnaround times are better for our clients, our operating expense goes down over time, and we're also able to create APIs off the technical layer that allow us to serve up data in a meaningful way. Everyone's trying to do that. We think we have a right to do it. We've seen data for 40 years. We see lots of it. We're good with it. I think those are the kind of things that are the building blocks for innovation. You don't just get the right to come out and say, oh, I'm going to innovate. Okay, on what basis?
Well, because we spent money to go build out OCI, because we spent time, energy, and money to go build out the data layer, because I hired Fernando Schwartz to be our Chief AI Officer and have hired 15 AI professionals. We're doing the stuff you got to do in order to create the innovative concepts. I think those are the, you know, that's really the piece that matters for us is doing that because the ideas are many. As I said earlier, it's taking the critical view from the many things that hit the windshield and then having systems and processes to execute on this. I tell the team all the time, pick something, start it, and finish it. Easy. The land of interesting conversations becomes not interesting pretty quickly to me. What are you going to do? How are you going to do it and finish it?
That's really what I think we're trying to do as it relates to innovation. We're not going to do everything. We're going to do the things that are on strategy, and we're going to finish them. That's kind of our focal point for us.
Great. You mentioned AI a little bit. Can you expand on that? How are you applying AI to your business, and what do some of those early returns look like?
Yeah, sure. When you think about it, we are going all in on AI. We've actually been an AI company for quite some time, and we have 37 models in production right now that are really used in conjunction with the service and the value we provide to our clients. On top of that, our new Chief AI Officer, Fernando Schwartz, has built a world-class AI team. As a matter of fact, we have a few dozen internal use cases where we're looking to use AI, for instance, within finance, to do things to make our business run better, faster, and smarter. When you take a look at our capital profile, we're going to spend $155 to $170 million on capital this year. Half of that's just to run the business.
When you roll out of bed, about half our capital we used to spend to run the business will get a little bit less over time now that we're getting out of the data center business and we've moved over to Oracle Cloud Infrastructure. That means we get to spend half of our money on things that are either going to grow with our customer base or potentially transform our business. What I think we see right now is we've started to make investments in AI. We've had, I would say, smaller investments in AI, but they've been native within our product set. We are going to take the tailwind from the HR1, the One Big Beautiful Bill Act, and the ability to accelerate depreciation on CapEx. We're going to continue to invest in CapEx to grow and transform the business.
I wouldn't be surprised over the next few years if nearly a quarter of our grow transform capital gets spent on artificial intelligence. It is something I think maybe even on our next earnings call, you'll hear a point of view from us on how we are thinking about the markets and then how we're thinking about and leveraging AI in a more fulsome way going forward.
That's great. I guess if you think about sort of where you were a year ago and where we are today, your past refinancing, equity, and credit have performed very well. Obviously, you're in a little bit of a different seat from a capital allocation perspective. Just zooming out a little bit on that, what are some of the priorities? Where should we expect to be focused?
Yep. Three words: delever, diversify, and accelerate growth. When you look at the delevering of the company, we are still around eight times levered. That is, we're a public LBO right now still. Our primary objective is to continue to focus on and prioritize delevering the company. Given the high operating leverage we have, we're going to continue to invest organically because we have a whole series of things that we're doing that we think will lend themselves to good growth and return on capital.
With the acceleration plan, that's where we are very purposeful on the S-3 shelf that we recently filed to look for potential new sources of capital to help us now that we've stabilized the business, our core business and foundation is strong, to go out into the markets and maybe go raise some new money to do some more meaningful things like M&A that are outside of the envelope of what we're currently capable to do with our capital structure. I'm highly encouraged when you look at the kind of market value of our debt instruments, about 20% or so of our capital structure and our debt structure is trading above par now. A much different story than November of last year. About another 40% or so is trading within $0.10 of par.
I think the repairing of the capital structure was a really important milestone that has now given us a little bit more optionality. When we think about those three strategic priorities, we're looking on a balanced basis, but those objectives are clear. What you're going to hear is a sense of urgency from Travis and myself and our team as we go out and talk to the markets and look for the best ways to unlock growth.
Great. Maybe pivoting back to the future, you know, where do you see kind of the big pockets of growth of the company going forward? Obviously, healthcare is changing, customers have challenges, but where do you think Claritev can really kind of drive that excess growth you were talking about earlier in this conversation?
Yeah, I think a couple of things. If I had to summarize it a little bit, I would say I think we're, you know, we're in the right lane. That's good. Challenges in healthcare are going to persist. We know that. We're foundationally sound, and that was a fundamental question when I arrived. There's our, you know, housing foundation of the company. It's sound and going forward. Now we can focus on some of these new and existing markets. Our real focus is going to be on the core, the verticals, international, new products. We think we have the infrastructure and the people and the talent in place now to go focus on that and build from that core outward. The proof points are showing up, which is why I think our shares are starting to reflect that.
On our last call, we were able to go through each market vertical and demonstrate very specifically success in that market. I think those are the kind of things that are really starting to resonate for us. It's renewals, VDHP, Ben Insights, new market opportunities. We just say judge us on our actions, not our words. We're just kind of laying down that track record over time that we think will show and yield the value that the company could be worth.
Great. As you think about the forward picture in one, three, five years, what should the audience's takeaway be as to, you've obviously come a long way in the last 12 months, but where are we going?
I think, you know, for us, it's just the beginning. We barely started this story. I'm a year and a half in. Doug, you're what, almost a year?
Just over a year.
I think we've made progress. We're going to be relentless. I talk about leadership more than I talk about claims. When I talk to my team, it turns out leadership matters, and being relentless for growth is what it takes to actually grow. We are aligned to our clients' needs. We're going to continue to do that. I actually think we can change some of the business model in this part of healthcare and how it works, to much more of a subscription-based model. We can use M&A as an accelerant. It's something that we're ready to start having those discussions and talking about more on a go-forward basis. The last thing I'll say is that it's hard to find a compare. We serve a broad set of solutions across a 1.4 million provider network. That's massive, right? We have analytics solutions. We have direct employer solutions.
We're not a widget looking for an exit. That's not what we're doing here. We're going to build foundational value. We're going to build cash flow. We're going to build organic revenue growth. We're going to drive the company that way against the vision. I think, ultimately, that's something that investors and others can get behind because they see that we're in it for the long game. We do need to clean up our capital structure, which is one of the reasons we're here. We're looking for the opportunity to do that, and we're looking for folks to believe in our story and to come to the table to help us really take it beyond even what we see as the current growth thesis. The future is, we're very excited about it. Very excited about it.
We've got a lot of new people and talent that are here and excited about it as well. I think that's our story, we're sticking to it.
Fantastic. Guys, thanks for coming out. Really appreciate that time.
Yeah, thank you, buddy.
Thank you.
Thank you.